27 June 2014 AMC - Market managed to recover from initial bearish

27 June 2014 AMC - Market managed to recover from initial bearish

Market Summary 

European Markets Closing Prices

European markets are now closed; stock markets across Europe performed as follows:

·         UK's FTSE: + 0.0%

·         Germany's DAX: -0.6%

·         France's CAC: -0.5%

·         Spain's IBEX: + 0.2%

·         Portugal's PSI: -0.2%

·         Italy's MIB Index: -0.4%

·         Irish Ovrl Index: + 0.4%

·         Greece ATHEX Composite: + 0.1%

Before Market Opens 

S&P futures vs fair value: -1.40. Nasdaq futures vs fair value: -0.50.
The S&P 500 futures trade less than two points below fair value.

Major Asian markets ended the quiet Thursday session on a higher note. Beijing has announced the start of infrastructure projects in central and western China as part of its targeted stimulus. 

·         In economic data: 

o    Hong Kong's trade deficit narrowed to HKD42.40 billion from HKD55.30 billion (expected deficit of HKD49.80 billion) as imports rose 3.7% month-over-month (expected 2.5%, previous 2.4%) and exports grew 4.9% month-over-month (consensus 2.0%, prior -1.6%) 

o    Singapore's Industrial Production fell 5.7% month-over-month (consensus -0.2%, previous -4.0%), while the year-over-year reading fell 2.5% (expected 2.6%, prior 5.3%)

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·         Japan's Nikkei posted a modest gain of 0.3% thanks to support from growth-sensitive names. Amada and Kobe Steel jumped 4.1% and 3.4%, respectively. Canon lost 2.3% after being downgraded at BNP Paribas. 

·         Hong Kong's Hang Seng rallied 1.5%, ending on its session high as just about every listing settled higher. Want Want China Holdings led with an increase of 5.3%. Casino and gaming names outperformed with Galaxy Entertainment and Sands China climbing 3.7% and 4.0%, respectively. Lenovo was the lone decliner, down 1.0%. 

·         China's Shanghai Composite added 0.7%, climbing throughout the session. Technology names outperformed with Beijing Teamsun Technology and China Wafer rising 9.8% and 7.8%, respectively. 

Major European indices trade little changed amid light volume. The Bank of England took steps to cool the British housing market by introducing a cap on loans and implementing tougher lending standards. 

·         Economic data was limited: 

o    French Consumer Confidence ticked up to 86 from 85 (expected 85) 

o    Norway's Unemployment Rate held steady at 3.3% (consensus 3.4%) 

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·         In France, the CAC is higher by 0.1% with Danone in the lead. The stock trades up 2.4% amid takeover speculation. On the downside, Gemalto is the weakest performer, down 1.7%. 

·         Germany's DAX is little changed. Deutsche Lufthansa and Deutsche Post are up 2.1% and 0.9%, respectively. Adidas trades lower by 2.3%. 

·         Great Britain's FTSE is flat. Financials underperform following the action from the BoE. Barclays, Standard Chartered, and HSBC are down between 1.0% and 4.7%. London Stock Exchange leads with a gain of 6.1% after agreeing to acquire Russell Investments for $2.7 billion in cash.

U.S. Equities

·         Futures point to little change at the open following a quiet overnight trade as global economic data was light

·         The major averages will look to continue yesterday's momentum, which lifted the Nasdaq to its best close in more than 14 years and has both the DJIA and S&P 500 near record highs despite Q1 Final GDP printing a -2.9% QoQ, the worst reading since Q2 2009

·         Today's action is likely to taper off into the lunchtime hour as participants around the world shift their attention to the World Cup match between the U.S. and Germany

·         Initial Claims (312K actual v. 315K expected)

·         Continuing Claims (2571K actual v. 2588K expected)

·         Personal Income (0.4% actual v. 0.4% expected)

·         Personal Spending (0.2% actual v. 0.4% expected)

·         PCE Prices - Core (0.2% actual v. 0.2% expected)

o    S&P Futures unch @ 1949

o    Dow Futures +6 @ 16,777

o    Nasdaq Futures +2 @ 3817

Asia

·         Markets rallied across most of Asia

·         Japan's Nikkei (+0.3%) remained near five-month highs

·         China's Shanghai Composite (+0.7%) was boosted by new issues and technology shares

·         Hong Kong's Hang Seng (+1.5%) neared its best levels of 2014 as casino stocks led the way

·         Australia's ASX (+1.2%) was supported by a jump in iron ore prices 

·         India's Sensex (-1.0%) was the lone decliner as oil shares weighed

·         Taiwan's central bank held its key rate steady @ 1.875%, as expected 

Market Internals

Market Internals -Technical-
The Dow closed down 21 (-0.13%) at 16846, the S&P 500 closed down 2 (-0.12%) at 1957, and the Nasdaq closed down 1 (-0.02%) at 4379. Action came on below average volume (NYSE 578 mln vs. avg. of 663; NASDAQ 1453 mln vs. avg. of 1724), with mixed advancers/decliners (NYSE 1644/1485, NASDAQ 1271/1394) and new highs outpacing new lows (NYSE 166/18, NASDAQ 48/31).

Relative Strength: 
Rare Earths-REMX +2.22%, Australia-EWA +1.38%, Japan-EPP +1.26%, Volatility-VXX +1.25%, Greece-GREK +1.15%, Silver Miners-SIL +1.08%, Hong Kong-EWH +1.07%, China 25 Index-FXI +0.98%, Metals and Mining-XME +0.87%, Livestock-COW +0.80%.

Relative Weakness: 
Natural Gas-UNG -2.74%, Poland-EPOL -1.55%, India-INP -1.46%, Turkey-TUR -0.93%, Eastern Europe-ESR -0.91%, Russia-RSX -0.82%, Oil-USO -0.81%, Bank and Brokerage-RKH -0.73%, U.S. Health Care-IHF -0.73%, Semiconductors-SMH -0.49%.

Leaders and Laggards

Technical Updates

Briefing's Commentaries

Closing Market Summary: Stocks End Little Changed Despite Early Slide
The major averages posted modest losses on Thursday, but a daylong rebound off the early lows helped the indices retrace the bulk of the decline. The S&P 500 shed 0.1% with six sectors ending in the red.

Stocks did not waste any time this morning, sliding to session lows within the first 30 minutes of action. All ten sectors participated in the early retreat with financials (-0.3%) leading the market lower.

Earlier this week, the financial sector struggled to keep pace with the broader market, but today's intraday losses were large enough to pressure the S&P 500. Citigroup (C 47.23, -0.59) was the weakest performer among the majors, while European financials also struggled. Most notably,Barclays (BCS 14.55, -1.16) fell 7.4% after New York Attorney General announced fraud charges against the company. In addition, news out of the Bank of England related to higher mortgage caps and stricter lending standards may have contributed to the losses.

Like the second-largest sector, the top-weighted technology space (-0.2%) also had a tough time keeping pace with the S&P 500. The tech sector suffered from losses among large cap names like Google (GOOGL 584.77, -1.16) and Microsoft (MSFT 41.72, -0.31), while chipmakers fared only a bit better. The PHLX Semiconductor Index slid 0.4%.

On a side note, GoPro (GPRO 31.34, +7.34) was a bright spot within the sector, soaring 30.6% on its first day as a publically traded company.

Elsewhere, industrials (-0.2%) also lagged amid broad weakness in transport and defense stocks. Notably, the Dow Jones Transportation Average (-0.2%) narrowed its June gain to 0.6%, but it is worth pointing out the bellwether complex soared more than 5.5% last month.

On the upside, four sectors—consumer discretionary (+0.1%), energy (+0.1%), health care (+0.1%), and utilities (+0.2%)—posted slim gains with the utilities space extending its year-to-date gain to 15.1%.

Treasuries spent the bulk of the trading day in the green, ending just below their highs. The 10-yr note added nine ticks, sending its yield lower by tree basis points to 2.53%.

Participation was well below average with less than 600 million shares changing hands at the NYSE.

Economic data was limited to initial claims and income/spending data for May: 

·         The weekly initial claims level fell to 312,000 from an upwardly revised 314,000 (from 312,000), while the Briefing.com consensus expected a reading of 310,000. 

o    For most of 2014, the initial claims level was bound between 320,000 and 330,000. Over the past few weeks, claims have come down into the 310,000-320,000 range. The current levels should spark an acceleration in payroll growth and show clear improvement in labor market conditions. 

·         Personal income levels increased 0.4% in May following a 0.3% increase in April. The Briefing.com consensus expected personal income to increase 0.4%. 

o    The May employment data showed a 0.4% increase in aggregate wages, which correlated nicely with a 0.4% increase in employee compensation. 

·         Personal spending increased 0.2% in May after no growth in April. The consensus expected spending to increase 0.4%. 

o    Adjusted for inflation, spending declined 0.1% on the heels of a 0.2% decline in real PCE in April. That will not factor all that favorably in the calculation for Q2 GDP.

Tomorrow, the final Michigan Consumer Sentiment survey for June will be released at 9:55 ET (Briefing.com consensus 81.7). 

·         S&P 500 +5.9% YTD 

·         Nasdaq Composite +4.9% YTD 

·         Dow Jones Industrial Average +1.6% YTD 

·         Russell 2000 +1.4% YTD

Commodities

Closing Commodities: Natural Gas Falls 3% On Inventory Data, Crude Slides 0.7%

·         Aug gold traded in the red today, falling as low as $1311.40 per ounce in morning pit trade. The yellow metal consolidated near the $1316.00 per ounce level in afternoon action and settled with a 0.4% loss at $1317.00 per ounce.

·         July silver managed to erase most of its earlier losses as it lifted from its session low of $20.90 per ounce in morning action. It brushed a session high of $21.12 per ounce and closed 0.1% lower at $21.10 per ounce.

·         Aug crude oil spent its entire session in negative territory, dipping to a session low of$105.01 per barrel. It inched slightly higher in afternoon action and settled with a 0.7% loss at $105.80 per barrel.

·         Aug natural gas touched a session high of $4.60 per MMBtu in early morning floor trade but sold off sharply following inventory data that showed a build of 110 bcf when a build of 93-102 bcf was anticipated. It traded as low as $4.40 per MMBtu and eventually settled with a 2.8% loss at $4.44 per MMBtu.

COMEX Metals Closing Prices

·         Aug gold fell $5.60 to $1317.00/oz 

·         July silver fell $0.03 to $21.10/oz 

·         July copper settled unchanged at $3.17/lbs

CBOT Agriculture and Ethanol/ICE Sugar Closing Prices

·         July corn rose 1 cent to $4.42/bushel 

·         July wheat rose 5 cents to $5.80/bushel 

·         July soybeans rose 22 cents to $14.37/bushel 

·         July ethanol rose 5 cents to $2.12/gallon 

·         Sep sugar (#16 (U.S.)) rose 0.03 of a penny to 26.08 cents/lbs

Treasuries

Treasuries Book Third Day of Gains: 10-yr: +11/32..2.526%..USD/JPY: 101.70..EUR/USD: 1.3607

·         Treasuries booked modest gains, supported by this morning's disappointing personal spending (0.2% actual v. 0.4% expected) data. PCE Prices - Core (0.2%) and personal income (0.4%) matched estimates. Click here to see an intraday yields chart.

·         Maturities hovered little changed ahead of this morning's data following an extremely quiet overnight session, but saw an aggressive climb to session highs as the data was released. 

·         The complex spent the remainder of the morning chopping around near the highs as participants shrugged off someone hawkish commentary from St. Louis Fed Preside James Bullard. Mr. Bullard did his best Mark Carney (Bank of England Governor) impersonation as he suggested, ""We are pretty close to normal, I don't' think policymakers, markets have digested that." 

·         Volume dried up into the lunchtime hour as traders turned their attention to the USA-Germany World Cup match. 

·         The match may have had something to do with today's disappointing $29 bln 7y note auction, which drew 2.152% (WI 2.140%) and a light 2.44x bid/cover. Both indirect (40.6%) and direct (16.6%) bids were light, but primary dealers still ended up with just 42.8% of the supply.

·         Post-auction selling crept into the marketplace as the bears were able to take advantage of the lackluster participation, but buyers emerged when the match ended and the complex finished with modest gains. 

·         Buying had the biggest impact at the long end as the 30y fell -3.7bps to 3.344%. The yield was able to push back below trendline resistance off the January highs, and put in its lowest close of June. 

·         The 10y shed -3.4bps to 2.525%. Traders have begun to turn their attention back towards the May low (2.400%) as little support exists below the 2.500% level.

·         The 5y lagged as a result of yesterday's auction, ending -0.6bps @ 1.646%. The yield closed on the 50 dma, and is setting up for another test of the 100 dma (1.618%). 

·         A flatter curve persisted as the 2-10-yr spread tightened to 206.5bps.

·         Precious metals lost ground as gold fell -$6 to $1316 and silver shed -$0.05 to near $21.05. 

·         Data: Michigan Sentiment - Final (9:55).

On other news.... 

Currencies 

Dollar Fights to Hold Key 80.20 Level: 10-yr: +10/32..2.526%..USD/JPY: 101.68..EUR/USD: 1.3612

·         The Dollar Index drifts little changed near 80.20 amid a choppy afternoon trade as action fights to hold the 50 and 100 dma. Click here to see a daily Dollar Index chart.

·         A morning bid developed following hawkish comments from St. Louis Fed President James Bullard, causing trade to test the 80.40 level, but steady selling over the course of the morning dropped action back onto the flat line.

·         Volume dried up into the lunchtime hour as traders turned their attention to the USA-Germany World Cup match.

·         EURUSD is -20 pips @ 1.3610 as trade has more than halved its early losses. The single currency slumped to 1.3575 in response to the Bullard comments, but has steadily pared those losses. Eurozone data out tomorrow includes French consumer spending, German Preliminary CPI, and Spanish Flash CPI. 

·         GBPUSD is +45 pips @ 1.7025 as trade flirts with its best close since October 2008. Today's boost comes following comments out of the Bank of England indicating banks will be limited to issuing no more than 15% of new mortgages at a 4.5 loan-to-income ratio. Britain's current account balance and Q1 Final GDP will cross the wires tomorrow.

·         USDCHF is +5 pips @ .8930 as action fights to hold onto small gains. The pair probed the 200 dma (.8953) as a result of the early euro weakness, but has slipped off the level as the single currency gained strength in afternoon trade. 

·         USDJPY is -15 pips @ 101.65 as trade probes the 200 dma and contends with its lowest close in a month. Any close below the 200 dma would be the first since November 2012, when it was believed Shinzo Abe would become Japan's next prime minister. Japanese data is heavy as household spending, Tokyo Core CPI, and retail sales are scheduled for release this evening.

·         AUDUSD is +5 pips @ .9405 as the bulls attempt to put in a second day of gains. All in all, a quiet day for the hard currency as trade lingers near levels last seen in November.

·         USDCAD is -30 pips @ 1.0690 as sellers remain in control for the 12th time in 14 sessions. Today's weakness has the pair sliding into support in the 1.0600/1.0700 band, and has action set for its lowest close since early-January. Canada's Raw Materials Price Index is due out tomorrow.

Next Week In View




Economic Commentaries

Economic Summary: Personal Spending misses expectations; Jobless Claims in line with estimates
Economic Data Summary:

·         Weekly Initial Claims 312K vs Briefing.com consensus of 310K; Last Week was revised to 314K from 312K

·         Weekly Continuing Claims 2.571 M vs Briefing.com consensus of 2.588 M ; Last Week was revised to 2.559 M from 2.561 M

o    For most of 2014, the initial claims level was range bound between 320,000 and 330,000. Over the past few weeks, claims have come down into the 310,000 to 320,000 range. Those levels should spark an acceleration in payroll growth and clearly show improvements in labor market conditions. 

·         May Personal Income 0.4% vs Briefing.com consensus of 0.4%; April was 0.3%

·         May Personal Spending 0.2% vs Briefing.com consensus of 0.4%; April was revised to 0.0% from -0.1%

o    Personal spending increased 0.2% in May after no growth in April. The consensus expected spending to increase 0.4%. After adjusting for inflation, personal spending fell 0.1%, which was the second consecutive monthly decline and third monthly drop in 2014. Goods spending increased 0.4%, mostly as a result of a 0.7% increase in durable goods demand. Services spending increased 0.1%. 

·         May PCE Prices - CORE 0.2% vs Briefing.com consensus of 0.2%; April was 0.2%

Fed/Treasury Events Summary:

·         Fed's Lacker (non voter, hawkish) said national debt not an issue now but could be problematic in 15-20 years; would be a mistake to let inflation get out of control; supports rates at current levels.

·         Fed's Bullard (non voter, dovish) said unemployment will fall below 6% in 2014; says Fed closer to goals then people appreciate; economy can handle a pullback from current levels of monetary policy.

Upcoming Economic Data:

·         June Michigan Sentiment - Final due out Friday at 9:55 (Briefing.com consensus of 81.7; May was 81.2)

Upcoming Fed/Treasury Events:

·         The Treasury is set to auction off $29 bln in 7 year notes today at 13:00

Other International Events of Interest

·         Hong Kong's trade deficit narrowed to HKD42.40 billion from HKD55.30 billion (expected deficit of HKD49.80 billion) as imports rose 3.7% month-over-month (expected 2.5%, previous 2.4%) and exports grew 4.9% month-over-month (consensus 2.0%, prior -1.6%) 

Jason's Commentaries

The market managed to recover from a huge initial drop and regained the losses until the closing bell. Internals were showing some bearishness which is consistent with the market movements. The financials were the main laggard during yesterday's session as Barclays is being charged with fraud, while the Industrials were dragged down by the defense stocks as all F35 are being grounded due to a F35 jet fighter that caught fire. While on the technicals, it seems that the Dow jones has broken its short term trendline and might be continue falling, My guess is.. On the Dow, we're looking at the 16750 support level. With another 2 more bearish sessions i believe the market is likely to break the support level. Given the bad news starting to surround the industrials and financials, we might be looking at some retracements.








Market Call: FLAT to Downside

Date: 27 Jun 2014